October 21, 2008

Fitch Rates Washington Health Care Facil Auth (Seattle Cancer Care Alliance) $90MM Bonds ‘A+’

Fitch Ratings has assigned an 'A+' rating to the expected issuance of approximately $90 million Washington Health Care Facilities Authority revenue and refunding bonds series 2008 on behalf of Seattle Cancer Care Alliance (SCCA). The Rating Outlook is Stable.

The series 2008 bonds are expected to be structured as traditional fixed rate bonds. Proceeds from the series 2008 financing will be used to: refinance existing series 2001 and series 2005 bonds, reimburse for prior year capital expenditures, fund routine capital expenditures, fund a Debt Service Reserve Fund for the Series 2008 Bonds, and pay related costs of issuance.

The Seattle Cancer Care Alliance (SCCA) was organized in 1998 when Fred Hutchinson Cancer Research Center (Hutchinson Center), the University of Washington (UW), and Seattle Children's Healthcare System (Seattle Children's) developed a comprehensive program of integrated oncology services. The three entities have long-standing affiliations that support their respective missions of research, patient care, and education. In order to enhance cancer research and advance the treatment of cancer, the Hutchinson Center, UW and Seattle Children's have consolidated their adult and pediatric medical oncology/hematology clinical care programs into the separate, jointly governed SCCA, where each of the three SCCA partners has equal ownership. The SCCA's outpatient center is located adjacent to the Hutchison Center's campus. Further, the SCCA operates inpatient oncology beds at UW Medical Center and Seattle Children's.

The rationale for the assignment of the 'A+' is based on SCCA's solid operating history, its clinical reputation as a leading provider of complex tertiary/quaternary comprehensive cancer services in the Pacific northwest, and the support demonstrated by its strong founding partners. SCCA's solid operating performance as demonstrated by operating margins in excess of 6.0% in the preceding four fiscal years and 3.8% for the audited period ending June 30, 2008 leads to sound pro-forma debt service coverage of MADS ($6.84 million) by EBIDTA of 3.4x. SCCA is the second leading provider of tertiary cancer services in the greater Seattle area (18% market share, second to Swedish Health Services' 19%; most recent data through CY07.)

The strength of its partners contributes to SCCA's dominant market position (90% market share) for pediatric cancer services as a result of the Seattle Children's presence and its recognition as a world leader in the provision of bone marrow transplants via the Hutchinson Center. All of the cancer specialists who practice at SCCA have faculty appointments within UW's Department of Medicine. As further evidence of the strength of its member partners, the Hutchinson Center ranks first in grant funding from the National Cancer Institute (NCI) and UW School of Medicine ranks third among medical schools in grant funding from the National Institute of Health. Finally, Fitch notes that the partnership has been cemented as the original partnership contract 'outs' have 'sunsetted.'

The principle credit concern is the inherent risks associated with a concentration of operations in one specialty. Because SCCA is a single specialty service provider, a reduction in reimbursement for cancer treatment, could impact SCCA's ability to service its debt. However, Fitch believes an implied moral obligation exists from the sponsors to maintain the mission and economic viability of SCCA going forward. Further, SCCA's sound liquidity and the restriction of asset transfers outside SCCA (no more than 10% per year) provide some downside protection if drastic reimbursement changes were to take place.

The Rating Outlook is Stable. Fitch believes SCCA will continue to function as a leading provider of comprehensive cancer services in the greater Seattle area over the near to medium term, which should lead to continued strong operating performance and ample coverage of debt service.

Located in Seattle, WA, SCCA is a nationally recognized provider of specialized oncology services. SCCA has covenanted to provide audited annual financial statements and utilization statistics within 135 days of each fiscal year-end and quarterly financial and utilization data within 45 days of each fiscal quarter-end.

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